Oblong Inc (OBLG) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

And welcome to the Wire One Technologies second quarter results conference call.

At this time, all participants are in a listen-only mode.

Later, we'll conduct a question-and-answer session.

The instructions will be given at that time.

If you should require assistance during the call, please press star, then zero.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host chairman and CEO Mr. Richard Reiss.

Please go ahead sir.

Thank you Laurie.

Good afternoon everyone.

Welcome to our second quarter call.

With me are Chris Zigmont, our CFO and Mike Brandofino our CTO.

Before we begin, I want to remind listeners this call is being web cast live over the Internet and that a replay will be available on our Website following the call.

You can also find a copy of the press release on the site.

The address is www.wireone.com.

I'm going to let Chris review the Safe Harbor information with you now and then we'll proceed with our remarks.

Thank you Rich.

The statements contained in this call, other than historical information, are or may be deemed to be forward-looking statements and involve factors risks and uncertainties that may cause actual results in future periods to differ materially from such statements.

These factors risks and uncertainties include market acceptance and availability of new products and services, the nonexclusive and terminable at-will nature of reseller agreements with manufacturers, rapid technological change affecting products and services, the impact of competitive products and services, as well as competition from other resellers and service providers, possible delays in the shipment of new products, and the availability of sufficient financial resources to enable the company to expand its operations, and other risks detailed from time to time in the company's filings with the Securities & Exchange Commission.

Thank you, Chris.

We will try to keep our remarks brief today, and leave plenty of time for Q&A.

By now I hope you have had a chance to review the proxy statement filed last month on the pending shareholder vote to divest the Video Solutions segment.

I will focus my remarks on a few important items in the process, as they relate to Glowpoint and then review some of our second quarter operating highlights.

With respect to the pending transactions we are still on track to close shortly after what we expect will be a positive shareholder vote later this month.

Both sides have been working diligently, in preparation for the vote, and our transition teams are in regular contact with one another.

During this process, we have focused on ensuring the seamless transition for our customers, reconfiguring internal resources to facilitate our operations as an independent entity, and retooling our sales agent program.

We anticipate being able to hit the ground running as soon as the transaction closes.

One area on which we are laser focused is helping keep the Wire One sales force motivated to sell subscriptions.

We are working closely with Gores Technology Group to ensure these producers remain properly incentivized through commission and bonuses.

However, Gores Technology Group how it structures the package is out of our hands.

However, there are several arguments to support our belief that these producers will continue to sign up customers for Glowpoint.

First, this group has seen firsthand the benefits of Glowpoint.

The increased usage, higher customer satisfaction, and faster adoption of video technology when a customer uses Glowpoint over ISDN, and that experience will continue to be a powerful motivator for these sales folks.

Second we are seeing increased interest from Polycom, Tamberg (ph) and Sony, the top three video equipment manufacturers, not just in the technical arena but in some sort of co-marketing arrangement as well.

Third, with each Glowpoint success story, the sales force can visualize opportunities to expand their customers use of video and make it a mainstream business tool.

As for the Glowpoint business going forward the proxy statement provides a good pro forma overview of the financial characteristics of our video network business in Q1 '03 and full year 2002.

But let me try and fill in some of the details to give you a better sense of where we are headed.

When the transaction closes we will retain offices in New Jersey where our network operations center is located, as well as our R&D, software, network engineering, product development and product management groups and various other customer service functions are located.

We will continue to occupy our Camarillo California location, where our bridging and Glowpoint operators are located.

We will also maintain our finance and administration facility in new Windham, Hampshire.

We will have approximately 60 employees, 18% of which will be in research and development, 50% of which will be in engineering and operations, 13% in finance and administration and 19% (missing audio) in product development management sales and marketing.

Obviously this mix will change over the next year, as we staff up our sales and marketing capabilities and welcome a new chief executive.

As we announced earlier, the board has formed a search committee, which I am involved with to recruit a new CEO and president for the company.

This effort is currently underway and is on track to meet our internal time frame for completion of this process.

The company will update you as soon as more information is available.

The other point I want to make about Glowpoint's direction is that our service will continue to expand.

It presently has 11 points of presence in corresponding last mile access across North America as well as one POP each in Europe, Japan, and Puerto Rico, which has last mile access through telefonika.

We have recently added last mile capability in Central London, through a regional carrier and have plans to expand that capability to major European cities throughout the year in a similar fashion.

We also have efforts underway to offer a full solution in the Pac rim which includes China, Japan and Australia, and the Mid East, starting with Israel including last mile access through local service providers.

As for the second quarter results, we posted another solid quarter of growth for Glowpoint, where our $2.7 million in revenues was up over 20% from the first quarter of 2003, and over 100% from the year-ago period.

Keeping us on track to reach $11 million this year.

We presently have 280 Glowpoint customers accounting for 1720 end points as of June 30th.

With all the chaos in the world due to the war in Iraq and SARS, video communication service providers such as Glowpoint saw increased call volume throughout the spring.

Our team also did a good job of getting end points installed and invoiced, increasing that figure by 33% from the first quarter.

Our work on behalf of ESPN's coverage of the NFL and NBA drafts during the period was a watershed for the company and for the entire video conferencing industry.

For the first time, IP video was able to demonstrate its state of the art capabilities before a 700 million strong live audience and performed flawlessly.

To sum up the changes and accomplishments, pieces of the puzzle are coming together.

Many of these pieces were conceptualized during the preceding year, but we weren't able to move forward until the economy provided a window of opportunity to divest the Video Solutions business.

Now that we know what resources will be available after our transaction, we are moving forward as quickly and deliberately as we can.

With that, I will turn the call over to Chris Zigmont, our CFO who will review our financial results.

Good afternoon.

With the signing of the definitive agreement to sell the company's Video Solutions business to Gores Technology Group on June 10th, 2003, discontinued operations accounting again is being employed in the financial statements, disclosed in the press release.

The totals of assets and liabilities of the discontinued Video Solutions operation as of June 30th, 2003, are separate separately disclosed on the face of the consolidated balance sheet.

And the results of operations for this segment are disclosed on the consolidated statements of operations.

The results of continuing operations, are now the results of our video network segment.

Which primarily consists of the results of the Glowpoint network service.

As Rich noted, we reported total net revenues from continuing operations of $2.7 million during the quarter.

An increase of $1.4 million, or 112% over the $1.3 million in revenues reported in last year's second quarter, and an increase of $450,000, or 20%, over the $2.2 million reported in this year's first quarter.

Total net revenues from continuing operations for the first six months of 2003 were $4.9 million, an increase of $2.5 million, or 108% over the $2.4 million in revenues reported in last year's comparable period.

The 100+% year over year increase in video network revenue for the second quarter was driven by a 248% increase related to Glowpoint.

The growth in Glowpoint network services revenue was a result of having on average 794 more video end points receiving invoices in the 2003 period than in the 2002 period.

The gross margin on video network revenues in 2003 second quarter improved to positive 3%, from negative 3% in the first quarter of 2003, and from negative 15% in the 2002 fourth quarter.

We believe gross margins for the video network segment should improve over the course of 2003 and 2004, as we spread the fixed cost of Glowpoint over a larger subscriber and revenue base.

Operating expenses increased $400,000 or 16%, in the 2003 second quarter, to $3 million, from $2.6 million dollars in the year-ago quarter.

An increase of $500,000--or 21%, from the $2.5 million in the first quarter of 2003.

The primary causes for these increases are the $300,000 of marketing expenses incurred in expenses incurred in the 2003 second quarter related to the NBA draft event, and increase in bonuses and commissions of approximately $100,000 related to increased revenues, and increase in professional fees of approximately $200,000 related to M&A and other corporate activities.

As a percentage of net revenues, operating expenses were 114% compared to 209% in the 2002 second quarter and 113% in the first quarter of 2003.

This percentage will work its way down as the fixed cost in this category are spread over a larger revenue base over the coming quarters.

On a net basis, we reported a loss from continuing operations of $3.9 million, or 14 cents per share, compared to $2.7 million or 10 cents per share in the 2002 second quarter.

Higher interest expense on our line of credit facility, approximately $100,000, to $200,000 of interest accrued in Q2 under subordinated debentures and the amortization of the discount on subordinate debentures approximately $450,000, comprised approximately $800,000 of the difference between the two periods.

Our EBITDA loss from continuing operations of $1.3 million was lower than the year-ago loss of $1.6 million, and approximately flat with the EBITDA loss of $1.2 million in the first quarter of 2003.

This level was in line with our covenants under the line of credit facility with J.P.

Morgan Chase Bank.

Before turning the call over to Mike I'd like to turn your attention to the cash flow statement, where the biggest news for Wire One was the $800,000 in positive cash flow from operations we generated during the first half of 2003.

The $800,000 of cash was provided in Q1, as you might recall from our first quarter earnings call, and in Q2, the company neither generated nor used cash in its operations.

A continuance of the trend of doing better than we had originally forecast in terms of our quarterly operating cast utilization.

We continued to enjoy great success in collecting our accounts receivable which was primarily generated by the discontinued Video Solutions segment.

After the consummation of the sale of the Video Solutions segment, and with the company wholly dedicated to providing video network services its cash flow dynamics will undergo an immediate change.

Given the relatively early stage of the development of this business, we expect quarterly cash utilization in the range of $2 million to $2.5 million per quarter, over the coming quarters.

This figure includes outlays for capital expenditures.

Our plans for capital expenditures for the foreseeable future remain unchanged at a $3 million annual rate of spending or an average of $750,000 per quarter.

But I remind you that there is a discretionary component to these plans, and we could delay expenditures further if that were necessary.

In summary, the second quarter marked a turning point for the company, in its development as a focused IP video network service provider, while it continued to deliver EBITDA performance that was in compliance with its bank credit agreement.

We look forward to reporting our progress on future calls.

With that, I'll turn the call over to Mike.

Thanks Chris.

I will briefly touch on some of the second quarter operating highlights, but also update you on what we've been doing behind the scenes to prepare for the transition.

First, we had another strong quarter of growth across all performance metrics.

Along with some significant events during the quarter.

We discussed the ESPN NFL draft on our last call and said we felt confident it would lead to additional events.

As many of you know, due to the success of the NFL event, Glowpoint was selected to cover the live interviewed for the NBA draft as well.

This time we extended the marketing benefit by having the connected by Glowpoint logo on screen during every interview.

I'm also pleased to confirm that we have created a buzz in the broadcast industry, which is opening up new opportunities.

Based on the success of those two events we are well on our way of converting that excitement into an entirely new vertical market of potential video communication users.

Since the NBA draft event , we have entered into discussions with four separate networks in using Glowpoint for various events or applications.

These discussions center around permanent use of Glowpoint and one is at the point us having a signed agreement shortly.

These event based projects are evolving into a great tool for getting large companies on board with Glowpoint.

During the second quarter we also supported a major launch event for a two large pharmaceutical companies that merged recently.

It had been difficult for us to get into this customer, get this customer thinking about Glowpoint, but the event presented a high profile opportunity to show what Glowpoint could do.

Originally Glowpoint was to be used as a backup to satellite connections at approximately six locations.

But heavy storms during the first day caused severe performance issues on the satellite connections which caused to shift gear for the more reliable Glowpoint network.

The marketing VP at this customer stated this was their most successful video event ever.

As a result the door is open for Glowpoint in other areas of this company.

While these events seem to overshadow some of our less visible but equally important subscribers, it is important to note that nonpress worthy orders get placed every day.

We deal with both the private and public sectors that could potentially implement Glowpoint across a hundred or month locations.

But it is rare that we start out with mean few subscriptions since most technology managers at large organizations are reluctant to adopt new technology.

That said, once those circuits start creating value for our customer the door is wide open to sell additional end points.

One of our largest subscribers, a nationwide disaster and emergency services organization, that now has 41 locations installed or under contract, is a good example.

We initially began serving that groups northwest region with only about ten locations, but have since expanded service to nearly all of its regions on this basis.

The point, as it relates to Q2 is that while end point growth may fluctuate quarter to quarter subscriptions are booked nearly every business day and together they add up to significant revenue growth over time.

There is seasonality in our order flow.

For example, we typically see accelerating sales during the last month of a quarter as sales agents place last minute orders to meet quotas and depending on the time of year, certain quarters may demonstrate better growth than others, as in the equipment business.

But in the bottom line is that subscriptions continue to build with little or no churn.

Utilization rates remain strong as evidenced by our over 21,000 calls carried by Glowpoint over the period.

And as you have seen, revenue continues to grow nicely.

With respect to our preparation for a postvideo solutions business, we are working hard to ensure a seamless version for our customers, sales agent program.

We've hired a product manager and VP of operations to help fortify customer service, and product development activities.

Their task is simplifying and improving the process from order to first invoice, shrinking the time it takes to get an end point installed an running, building out our help desk, and generally ensuring that the customer is well served.

They are also responsible for managing our customer relationships and steady progression of new fee features.

We have benefited from the fresh set of eyes and look forward to their future contributions.

In preparations for the pending Separation, we have been developing a web based tool called [I Sell Glowpoint.com], which is scheduled to be launched with our new Website, on or about September 1st.

One thing we learned from having internal sales force, is that front line people need immediate access to resources and tools in order to do their job well.

As a unified company, we always took this type access for granted, but with our pending separation we quickly realize that all our sales agents not just Wire One would need a high level of support to effectively sell subscriptions so we're creating a Website to help create the benefits and value process of our services and walk customers through the decision making and support process.

Along with the systems to support agents we will have to replace a number of services that we shared with the Video Solutions business.

When we were one company.

The primary areas that we have been focused on are customer facing functions like help desk NOC escalation, order processing.

This requires us to build new teams and processes to handle the expected growth in the coming quarters.

The business model for Glowpoint had always included a provision for a separate Glowpoint company, but many of the plans can only be implemented upon the completion of the sale.

We are pressing forward on a number of fronts to ensure that we hit the ground running as new agents get signed up over the next couple of months.

With that I'll hand it back to Rich.

Thanks Mike.

I'm sure at this point there are several questions that some of you have, so I will turn the call over to question and answer.

Laurie?

(OPERATOR INSTRUCTIONS) Our first question will be from the line of Brian Alger with Pacific Growth Equities.

Hi guys, good evening.

Hi, .

The biggest question is with regards to the profitability of Glowpoint, you crossed over nicely into positive gross margins.

How many subscribers do we need given the current cost structure to get operating profits?

This is Chris.

We're actually going to talk today, rather than subscribers or end points, and point to revenue figure that we're anticipating will get us to profitability.

And that figure is about $6 million in revenue a quarter.

And we anticipate achieving that by the middle of next year.

Mr. Brian Alger, your line is open.

I'm sorry, he has apparently removed himself from the question queue.

I'm sure he will be rejoining us shortly.

And our next question will be from the line of Greg McArthur with Viewpoint 2000.

Please go ahead sir.

I got to take my hand up for Rich making that move for divestiture.

I think you're on stream, and I think I'm very impressed.

Couple of questions.

Generally speaking, Rich, use of proceeds, generally speaking.

Number 2, executive search, you don't have a name, but could you give the people on the conference call kind of your ideal profile?

And 3, I don't believe there are any competitors out there that are doing what you're doing.

And I may be wrong.

Could you address that?

I'll try and address what I can.

And thank you for your comments.

Rich, actually would it be good for me to just touch on that first point about the net proceeds? -- use of proceeds.

Greg, the game plan is that that's the funding for Glowpoint over the coming year to two years.

We anticipate that that will get us to the point of profitability and beyond, and that's in line with the figures I quoted earlier, about our cash utilization.

We're anticipating a rate of two to $2.5 million of cash utilization a quarter.

And the proceeds from the sale will be well in excess of that.

Okay, fine.

And in terms of a profile, the board has obviously put some very careful and myself consideration into the profile.

But I think I have to talk in extreme generalities.

But I think as this company continues, is now finally going to reach its goal being a pure subscriber based business or services based business, really a Glowpoint is an ASP with the application being video.

And I agree with you, I don't believe there is competitors in the IP video space today, although there are companies that say they do voice, data and video.

I believe that on a video service like Glowpoint, today the only competition remains legacy ISDN.

So our goal for a CEO is to find somebody with a proven track record that has been able to scale a subscriber business, that has that success behind them and can take the bull by the horns at Glowpoint and scale it the way we expect it can be scaled in the future.

Okay.

So you don't think there is any competitors.

I don't think there are out there.

But -- and I got to tell you, I have had a couple of people that have gone on your network, and they can't believe how unbelievable it is.

So it's -- that's in the form of a compliment, okay?

Thank you.

The goal has always been the simplicity and reliability of a telephone, with the TV quality like you left your house in the morning.

You're off and running and you're doing a great job right now.

I'll get off.

Thanks.

Next question is from Eli Lufgarten with HC Wainwright.

Good evening.

You talk about $3 million capex and $6 million to break-even.

Can you talk about what the capital needs of this business look like on a three to five year basis?

Can this business be expanded linearly without any major step up in spending, or do you hit a trigger, requiring higher level expenditures than the [$750,000 a quarter?]

Eli, it is Chris.

I'm going to start this off and then I'll move it over to Mike.

But I think the thinking we've had in looking out over the coming years is that there isn't a next major jump in capital expenditures.

That if we continue to make consistent capital expenditures, expanding the network, the rate of $3 million annual--maybe we need $1 million more, $1.5 million more, going out a year or two.

But it's not like we need $5 million or $10 million more.

I think the only way a spend like that would arise is if there was some, you know, dramatic expansion opportunity in Europe or the Far East that would necessitate us taking kind of a quick, immediate plunge at it.

And I'll turn it over to Mike.

Or the development of a new service we decided in house made a decision to add.

What we see happening moving forward, we'll be able to expand the bandwidth and cast at equal pricing that we have now.

We feel we can scale pretty well over the next couple of years on the model that we put together.

And let me just add.

Unlike some of the other subscriber industries, which took tremendous capex like cable to expand subscriber usage, because of how weave architected this network, the capex spend is generally not within Glowpoint but would be within carrier partners, such as the RBOCS as they increased facilities to get the businesses (inaudible).

And obviously, that was the problem with cable as well.

We have architected to be able to expand exponentially as well.

Thank you.

You're welcome.

Next question is from the line of Bill Mowerman with Lone Star Asset Management.

I have questions that might be best to discuss with Chris offline.

Are you going to be eight available later today or tomorrow?

Bill, yes, I can make myself available after the call.

Bill Mowerman Super.

What would be the best number to call you at, are you in New Jersey?

I think we have your number.

Can I give you a call?

Bill Mowerman Yeah, yeah, although I have moved so you may not have --

Why don't you call up Rich's assistant and leave that number with her.

Bill Mowerman I'll do that great.

The other, I did have some questions that probably Rich or Mike could answer.

And then some clarifications.

You said $6 million in revenues for break-even.

Is that on a cash basis or is that GAAP?

That's GAAP revenues.

Bill Mowerman Really.

So what would the cash -- excluding changes in balance sheet items but just you know ongoing expenses, what would the cash level be to not be burning $2.5 million a quarter?

Our GAAP revenue is really equivalent to our cash revenue.

When all is said and done.

I understand that.

I would assume if your GAAP break-even at $6 million a quarter, then your cash break-even should be lower because you aren't taking into – I meant, cash break-even excludes amortization and all that.

What would the EBITA break-even number be I guess is what I'm after.

It's probably in the neighborhood of $5 million.

I'd have to go back and actually look in the model.

We could talk about that outside of the call.

Bill Mowerman Okay.

Super.

And then Rich, I guess for you, could you kind of -- you already gave the number of employees.

But going forward, on the new company, could you kind of outline what you see, where you need to add, how many employees you need to go to, kind of what the company's going to look like say in three to six months.

Okay.

Let me start with we are obviously in transition and still trying to identify positions that will be required.

We certainly, a new CEO is -- the search is underway.

And we're certain that the new CEO is going to have ideas, it would certainly be my estimation at this point though that in the immediate area of focus would be sales and marketing.

Some sort of expansion, certainly in the marketing area, because at this point most of the marketing folks are going with the Gores Technology Group, which gives us a fresh new marketing look as a service provider versus a combined bar end service provider.

But I believe a lot of these decisions – And I think the new CEO is going to have you know certainly plans of their own on how they're going to expand it, what positions they see need to be filled.

And -- but certainly sales and marketing would be one of the first place he.

We've already taken big strides in the infrastructure on the operations engineering R&D and product management side.

So I think the next area of immediate attention would certainly be sales and marketing.

Got you.

And I think you said you had around 20% of current employees of the 60 employees in sales and marketing so there's around 12 in sales and marketing right now?

Sales and marketing, I think we said product development as well and that would be sales engineering support.

Got you.

How many people are actually going to be out selling then?

Well, again, our initial strategy is the channel strategy where we will support channels, Wire One former solutions business, when the transaction closes being the largest channel.

Strong interest in representing the Glowpoint product.

So rather than try and put hundreds of feet on the street, we think we can scale through existing feet on the street through the proper management of new resale agents that have immediate access to customers who have needs for the Glowpoint service.

So it's going to be channel management activity, channel signup, channel management channel sell-through, and that will enable us to get through a much greater amount of feet on the street than through our own direct effort.

I guess drilling down a little further, how many people do you have managing that aspect around three to six or --

Right now we have four with plans to go to five, with a sales manager or VP of sales.

Got you, okay super.

And I guess the last couple of questions will probably be for Mike.

You mention Ted four TV networks talking about using Glowpoint.

Will this be different than ESPN, in that you'll probably make money on this and not having the marketing expense?

Before Mike answers that with marketing sense we did sell to the NFL and NBA the Glowpoint service.

Some of the marketing expense was by way of bartering other services, not the Glowpoint network transport.

Got you.

The answer would be these are more in the line of a permanent solution to replace satellite communications in some specific applications.

Got you.

So these would be like any other customer, they would be billed and hopefully be profitable and all that good stuff then?

Right this.

They will add to the gross margin, yes.

Looking at the revenue per I guess average revenue per end point, I notice it was up from Q1 to Q2 but it was down from Q2 this year from Q2 of last year.

Can you kind of go over what happened there and that would be it, thanks.

Well, I can start, actually, Bill on that.

This is Chris.

In that-- in during the course of 2002, we certainly saw a bit of jumping around in that average monthly revenue figure per end point as the service was developing and we were adding more Glowpoints on to the network and billing and so on.

But in terms of the particular characteristics, it was in the ancillary services where the change, year over year, occurred.

The subscription revenue was approximately flat, but the bridging revenue and some of the other gateway and service revenue declined year over year on a per end point basis.

It actually grew on a revenue basis.

Definitely on an absolute dollar basis, that's an expanding figure for us.

And I can shed some light.

What we've been seeing is more customers putting multiple end points on the end of a single circuit.

So where they may upgrade from a 512 to a full T, they now might now have 4 or 5 end points connected to that.

All revenue producing end points, so the circuit package price is by the circuit.

And then the additional revenue per end point, you know, is spread across more end points.

So what we saw is a lot more, which I think is a positive sign, customers increasing band width and putting more end points on.

We have also seen an increase in us doing integration with customers' networks, where they may have many more end points on a network and connecting via multiple T1s or higher band width solutions.

So we are seeing an increase in the number of end points per location, which really distributes it.

Do you charge per end point or per circuit or both?

The monthly fee is per circuit.

The individual services like bridging and operator calls are tracked per end point.

So the ancillary services are tracked on an end-point basis but the monthly fee is billed to the circuit.

And when you say end points installed or under contracts is that circuits or end points?

That is end points.

Bill Mowerman Okay so circuits may be lower than that?

It will be.

It absolutely is.

To date it has been about [125%] of circuits equals end points.

That will vary.

That could be 130% this quarter based on one large Japanese electronics manufacturer which had a design and application for them, where they put dozens of end points on very high band width circuits.

Bill Mowerman Got you.

Bill, this evolution of the business which you've focused on here is actually prompting us to consider adding other metrics for the future.

And there will be more to come on that in future calls.

Bill Mowerman Okay.

I got you.

And I guess just going forward, what -- shall we run with 660 for the average revenue per end point or per circuit or should we -- what would you suggest if we're modeling you know subscribers and revenue per subscriber?

If you look at a circuit, that's been extremely consistent, it's been 812, and 800 to 820 range for the last 4 quarters.

It is how many end points hang off of a circuit that varies.

Which is why again we're trying to focus on the revenue number for break-even, and break-even both profitability and EBITDA.

Because that's the best metrics, that got metric.

You see how you get there based on circuits again.

We think that you know in the very near future we will be introducing just a positive set of metrics to say look at these metrics, quarter in quarter out when you see that growth you'll see the revenue attached to it.

Rich I'd add to that though the last three quarters we've been right in this range from 650 to 670.

And we just did 660 right in the middle of that range in the revenue per end point.

So you know to the degree we haven't you know put out historical counts of the circuits, that's still something I think that would be fair to use.

Bill Mowerman Okay, great, thank you very much.

And good quarter guys.

Thank you.

And our next question is from the line of Frank Cupps (ph) with Wachovia Securities please go ahead.

How you guys doing today.

I saw the number of end points that were added on the network for the quarter.

And it looked like we put up and running on the network 262.

Are we are finding that quarter to quarter the number of end points we are actually put up to speed get them running is that increasing or is that a level number quarter over quarter?

That should be m creasing.

We have the capacity to do more.

What the delays are, are in things that you know obviously out of our control.

One is equipment.

And whether it's tied to an AV room.

So, we have the definitely the capacity to increase the number of circuits installed an monthly basis with the staff that we have right now.

You know, everybody may know that Verizon is in a slow down so that may affect our ability to deliver circuits in this area.

But that doesn't mean we don't have the capacity to do so.

What is the average install time from an order being made to up and running?

Six weeks, I guess.

Via cell sites go very quickly.

I'm about to add a caveat, which is that's not including customer instigator delays, such as rooms not being ready or you know, other reasons.

In-house cable plan.

Yeah, exactly.

We're seeing an average being about 90 days when you add customer delays when it actually takes for Glowpoint to provision a service to the customer.

The customer doesn't want to recognize that circuit nor that circuit's billing, they are hanging something off the other end and making calls.

So although we're able to perform more quickly if the customer's not ready or the equipment's not ready we would hold back so we're not paying for access cost prior to a customer being ready to say yes, that circuit's in and I'm having a system hanging on it and I'm making calls, so I should pay for it this month.

International will be longer than U.S.

Okay.

What are we seeing on the reseller channels?

I see that we signed Meridian recently.

Have they brought anything to the table yet and what about the relationships with Telefonika, Cable One wireless, where are they?

We will address the VAR resellers.

There is a cute interest from the VAR resellers.

Others have been signing up.

I think you start to see their successes in the field as they bring up their Glowpoint demonstration circuits and start making customer calls showing customer presentations or actually showing the Glowpoint service to their customers.

So there's probably a three to six month lag time, before they're actually starting to get up and running in terms of sending orders into Glowpoint.

Although what we're starting to hear, and again this is here because this is still -- we are very early in the process of customers -- of potential VARs that were very interested in selling Glowpoint not having a competitive environment with the VAR business attached to it.

But see immediate opportunities.

Now, we obviously have to go see those customers you know rationalize those opportunities and see that they really exist and help them get those opportunities signed and on board with Glowpoint.

With regard to cable and wireless, I think cable and wireless today is an extreme state of flux.

Although they talk extremely interested, we're not sure whether or not they're going to have a U.S. operation.

So we're kind of in a wait and see game with cable and wireless although they've told us they are going to bring up internal sites for demonstration purposes this quarter we have yet to see them bring up their internal sites.

We hope that they do.

And with regard to Telefonika we've had promising conversations over the past six weeks or so with senior management in North America.

But they move extremely lumbering and slow, they are the largest telco we do business with, 390,000 employees and $31 billion in revenues, where they are -- have an extremely monopolistic attitude.

Where we are starting to see traction with telefonika though, is certainly in Puerto Rico, where we now have a pop up, where they are supplying us with last mile access, and we are beginning to call on customers together with them in a unified manner.

So again the big ones, they're slow to get off the ground but I think they're important from a credibility standpoint and a capability standpoint.

I think the immediate punch will be from the new VARs (ph) that have immediate applications for Glowpoint that had been putting their customers on ISDN, and obviously continued success, and from the former Wire One sales force, which has obviously the strongest momentum out there today with Glowpoint, as we continue forward.

Okay.

With issuance of the options, Chris, do you know currently how many of the 4.4 million options are available out there for issuance?

And where does the need come from to issue another 2.1 million?

This is the material off the proxy in options.

Well while Chris looks up the his store cal information let me address the need.

This company is going to go through some large transition throughout the next year, bringing on a new CEO and management team to manage the growth it expects to see in Glowpoint.

And I think to attract key executives it certainly needs to have the availability of options to (inaudible) the right key executives to join this company moving forward.

So that was the reason for the increase in options for the board looking to increase the option availability.

This obviously does not mean that they are all going to be given out but they all need to be available to attract the kind of talent we want to see in this company on a go-forward basis.

Would the change in the number of employees eligible for stock options, when these employees step over to the other company, to the new entity, do they get to keep all those options that they had before or do some of those come back available to Wire One?

Frank, it's Chris.

In terms of folks that will become employees of Gores Technology, their options will be to vest in full.

They'll be accelerated vesting as a result of this corporate transaction.

They will have a period of nine months past the closing date of the transaction to exercise those options.

So that is rooted in the plan and the provisions of the plan, and it was elaborated on in the proxy.

So they don't have forever to exercise the options.

There's a defined period.

But they are fully vested in all options that were granted to them.

And going back to what I think was your original question, prior to approval of the additional options that we're seeking as part of the annual meeting, there were approximately 1 million shares that remained available currently.

Okay.

So the number would increase to about 3.1 then?

Exactly.

It was about 978,000 shares.

Okay, great, thank you much guys.

Sure thing.

Thank you.

Mr. Reiss, we have no further questions.

I'll turn it back to you.

Thank you.

I'd like to thank everybody for joining us on the call.

Again we will try to have one as soon as possible as there will be more corporate changes throughout the balance of this year.

We appreciate everybody's interest in the company and look forward to delivering positive results going forward.

Thanks again.

Bye.

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